Partisan Politics and Stock Market Performance: The Effect of Expected Government Partisanship on Stock Returns in the 2002 German Federal Election
Journal
Public Choice
ISSN
0048-5829
Type
journal article
Date Issued
2008-03-01
Author(s)
Abstract
Rational partisan theory suggests that firms perform better under right- than left-leaning governments. In the pre-election time, investors should anticipate these effects of government partisanship. This is the first study to investigate such anticipated partisan effects in Germany. Applying conditional volatility models we analyze the impact of expected government partisanship on stock market performance in the 2002 German federal election. Our results show that small-firm stock returns were positively (negatively) linked to the probability of a right- (left-) leaning coalition winning the election. Moreover, we find that volatility increased as the electoral prospects of right-leaning parties improved, while greater electoral uncertainty had a volatility-reducing effect.
Language
English
Keywords
Government partisanship - Stock market performance - Elections - GARCH modeling - Political information - Price formation
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Springer
Publisher place
Dordrecht
Volume
135
Number
3-4
Start page
131
End page
150
Pages
20
Subject(s)
Eprints ID
216282